Canada: Discount Stock Brokers: What Is The Extent Of Their Obligations To Know Their Clients?

Last Updated: February 3 2016
Article by A. Irvin Schein

The recent case of The Wish Group Inc. and Cianciulli v. De Vrij and Interactive Brokers Canada Inc. is an interesting review of the "know your client" obligations of a discount broker.

In this case, Mr. Cianciulli authorized Mr. De Vrij, a person claiming to have substantial experience as a trader in the financial industry, to open a corporate account for Cianciulli's personal holding company, The Wish Group Inc., at Interactive Brokers Canada Inc. Cianciulli signed a corporate resolution appointing De Vrij as an officer of The Wish Group and granted him sole trading authority over the account. He then transferred $2,000,000 into the account.

De Vrij invested those funds in commodity futures and lost over $1.8 million over a period of 3 months.

Cianciulli and Wish Group then sued De Vrij and Interactive for the losses. The matter went to trial against Interactive only.

Interactive is a discount broker. It does not provide investment advice to clients.

Nevertheless, Cianciulli asserted a claim against Interactive in negligence. He alleged that Interactive breached its "know your client" and "gatekeeper" obligations by failing to make necessary inquiries of Cianciulli before opening the account under De Vrij's trading authority. As a result, the plaintiffs wished to hold Interactive responsible for the investment losses arising from De Virj's mismanagement of the funds.

The expert witness testifying on behalf of Cianciulli at the trial insisted that Interactive should have been alerted to a number of red flags both before and after the account was opened. As all brokers, including discount brokers, are subject to a "know your client" obligation, it was required to "use due diligence to learn and remain informed of the essential facts relative to every customer and to every order or account accepted", as set out in regulatory requirements and obligations imposed by the rules governing the behavior of stock brokers in Ontario.

Even though Interactive was not in the business of providing investment advice, so that it did not have the obligation to make sure that investments were suitable for its clients, it is still required to obtain certain information before opening a corporate account. In particular, it must identify all beneficial owners of the company with an interest of 10% or more, verify the identity of the beneficial owners, obtain the names and occupations of its Directors, and obtain a certificate of corporate status. It must also obtain a corporate resolution to ascertain who is authorize to trade in the account on behalf of the company, and must verify the identity of that individual.

In addition, investment dealers must act as gatekeepers, meaning that they must exercise diligence when faced with situations that raise a potential of illegal activity. In particular they must respond to red flags, such as information known to the dealer that raises an issue respecting compliance with securities laws.

In this case, Interactive knew that The Wish Group was a holding company with a net worth of about $5,000,000. De Vrij characterized himself as President and Chief Investment Officer. According to the plaintiff's expert, Interactive should have questioned why a relatively small company like The Wish Group would have required a full time Chief Investment Officer. Furthermore, Interactive should have tried to understand better the relationship between De Vrij and The Wish Group.

The principal of Interactive had known De Vrij for years and knew that he had acted as a professional investment advisor in the past. According to the plaintiff's expert, he should have made further inquiries to determine if De Vrij was truly a corporate officer or was in fact acting as an investment advisor.

Interactive's expert insisted that Interactive had complied with all "know your client" requirements.

The trial judge agreed with the position taken by Interactive. It had to seek specific instructions from De Vrij to open a corporate account and De Vrij had the authority of Cianciulli to give those instructions. It obtained the necessary corporate documentation and information about The Wish Group and its beneficial owner and it received duly authorized trading authority. It had obtained the corporate resolution of The Wish Group setting out who had trading authority, signed by Cianciulli as sole director and beneficial owner. It was under no obligation to contact Cianciulli to inquire about his relationship with De Vrij, the person being granted trading authority. It was under no obligation to question why a small company would have a chief investment officer and it had no obligation to inquire into exactly what role was being played by De Vrij. There were no red flags warranting further action.

There are number of cases that have held dealers liable for losses for having failed to comply with "know your client" obligations. Generally speaking these cases involving dealers that provide investment advice. That was not the case with Interactive, a discount broker.

In the result, the action against Interactive was dismissed.

There was one other fact which, although does not relate precisely to the obligations of Interactive in this case, may well have swayed the judge's view.

It turns out that very shortly after De Vrij began trading on the account, it sustained a loss of about $500,000. Cianciulli found out about it and was livid. He emailed De Vrij and demanded that the money be replaced. De Vrij responded by indicating that the losses were not abnormal and that they could be recouped. Cianciulli decided to give De Vrij a second chance.

De Vrij went on to lose almost all of the balance of the funds.

The trial judge was not impressed by Cianciulli's behavior. While he was not required to calculate damages because he had decided to dismiss the action, he did say that if he was wrong, he would have concluded that Cianciulli's damages would be limited to the $500,000 of which he had become aware fairly early on. His decision to leave De Vrij in place constituted a failure to mitigate his damages. Presumably in the sense that from that point forward, Cianciulli was taking his chances. This suggests that the decision would have been different had Cianciulli pulled the plug on De Vrij's authority on the spot. The fact that he left De Vrij in place may well have played a role in the judge coming to the conclusion that Cianciulli was, as they say, the author of his own misfortune.

Originally published at

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

A. Irvin Schein
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.